Mattress Firm files for bankruptcy, to close 700 stores

1of 20PHOTOS: Bankruptcy protection
Mattress Firm filed for Chapter 11 on Friday in federal court in Delaware, capping several years of unbridled expansion that saddled the company with more than $1 billion of debt.
>>>See companies and brands that have bounced back from bankruptcy ...Photo: Gary Fountain, For the Chronicle / Gary Fountain/For the Chronicle

2of 20Click ahead to see brands and companies that bounced back from bankruptcy.Photo: FILE

19of 20Bankruptcy proceedings will allow Mattress Firm to exit hundreds of store leases in underperforming and overlapping locations. Mattress Firm said it could shutter up to 700 of its 3,300 stores nationwide, using the cost savings to improve its product offering, open stores in new markets and expand in its existing markets.Photo: Thomas B. Shea, FREELANCER / FOR THE CHRONICLE

20of 20Mattress Firm chairman Steve Stagner said in late December that the Houston-based bedding retailer planned to close 200 of its stores within the next 18 months in a bid to improve performance as parent company Steinhoff International grapples with a deepening financial scandal. The company, which has about 3,400 locations, including this one at 3845 Southwest Freeway in Houston, hasn't said which locations are on the chopping block.Photo: Bill Montgomery / Houston Chronicle

Mattress Firm, the nation's largest specialty mattress retailer, filed for bankruptcy protection Friday, a move that will result in hundreds of store closures as the Houston company seeks to get out from under its crushing debt.

The retailer filed for Chapter 11 bankruptcy on Friday in federal court in Delaware, capping several years of unbridled expansion that saddled the company with $3.2 billion of debt. The mattress chain acknowledged that it operates too many stores after a spate of acquisitions in recent years.

Bankruptcy proceedings will allow Mattress Firm to exit hundreds of store leases in underperforming and overlapping locations. Mattress Firm said it could shutter up to 700 of its 3,355 stores nationwide, using the cost savings to improve its product offering, open stores in new markets and expand in its existing markets.

The first group of 200 stores are expected to be closed in the next few days. Decisions about additional store closures will be made in the coming weeks.

"The process we have initiated today will allow us to strengthen our balance sheet and accelerate the optimization of our store portfolio," Steve Stagner, Mattress Firm's chairman, president and CEO, said in a statement.

Mattress Firm represents the latest casualty in brick-and-mortar retail, which has struggled to compete with the rise of e-commerce and changing consumer preferences. The mattress retailer joins Toys "R" Us, Gymboree, Payless ShoeSource and rue21 in declaring bankruptcy in recent years. Other retailers, including Sears and Macy's, have shuttered thousands of stores and laid off tens of thousands of workers in a bid to survive the so-called retail apocalypse.

By filing for bankruptcy, Mattress Firm and its parent company, Steinhoff International, may be looking to tempt a buyer into acquiring the struggling retailer. The South African conglomerate, which paid $3.8 billion in 2016 to acquire Mattress Firm, is embroiled in an accounting scandal that brought the extent of the retailer's financial problems to light.

Mattress Firm, in its filing Friday, said it is projected to lose about $150 million in fiscal year 2018.

Mattress Firm on Friday said it has received commitments for about $250 million in debtor-in-possession financing, which -- pending court approval -- would help the company fund its operations through bankruptcy proceedings. The company also obtained commitments for $525 million of senior secured credit as well.

The mattress chain is working with A&G Realty Partners to close stores and restructure leases. Sidley Austin LLP is the company's legal counsel, Alix Partners is its financial advisor and Guggenheim Securities is its restructuring advisor.

Mattress Firm expects to complete the restructuring process in the next 45 to 60 days.

A restructured Mattress Firm, post-bankruptcy, could appeal to private equity firms and mattress makers, such as Serta Simmons.

Mattress Firm started in 1986 with three salesmen and one small store in a Sharpstown strip mall. Over the subsequent three decades, the retailer grew to become the dominant player in the U.S. bedding industry with more than $3 billion in sales and 9,500 employees.

The company in recent years borrowed heavily to acquire competitors, such as Sleepy's and Sleep Train, and rebrand their 1,990 stores. At the same time, Mattress Firm faced growing competition from online bed-in-a-box competitors, including Casper, Leesa and Tuft & Needle.

Mattress Firm thought it found salvation in Steinhoff International, which acquired the retailer in 2016 in a $3.8 billion deal that analysts decried was overpriced. However, the South African retail conglomerate late last year became embroiled in an accounting scandal that called into question the value of more than $7 billion in assets.

Steinhoff has been working to restructure its debt and regain investor confidence amid an ongoing investigation into its finances.